When the Manhattan Company Saved New York's Honor

Robert E. Wright is the Nef Family Chair of Political Economy at
Augustana College in Sioux Falls, South Dakota and the author of fifteen
books, including Corporation Nation, forthcoming from the University of Pennsylvania Press.

I haven't been blogging much about the debt crisis because I've been tied up doing interviews on the subject for local media, WSJ's Market Watch, The Fiscal Times, and so forth. Plus, I've said it all before, back in 2011. (See my earlier blog posts about the unconstitutionality of deliberately defaulting, origins of the debt ceiling, etc.) I'm also up to my eyeballs writing the histories and compiling the corporate genealogies of America's largest 50 bank holding companies, which should come out of Columbia University Press's biz imprint in 2015. (Don't confuse that project with Corporation Nation, which will be out this December from UPenn. Go ahead and pre-order it. I dare you.)

Anywho, I just ran across the following letters in Lester W. Herzog, 150 Years of Service and Leadership: The Story of National Commercial Bank and Trust Company (New York: Newcomen Society in North America, 1975), 6-7 and wonder aloud if any of the big banks that received bailouts in 2008, including JPMC (the M stands for Manhattan, i.e., the bank below), would lend the federal government money, without authorization from Congress, to prevent a U.S. government default?

S. E. Church, Comptroller of the State of New York, to C. O. Halsted, President of the Manhattan Company, Albany, May 30, 1859:

I regret to be compelled to inform you that the Legislature at its recent session, neglected to provide any means to pay the interest on the new canal debt of $12,000,000. ... The amount required for the October and January interest will be $355,000, making an aggregate of $385,000, necessary. ...

I have ventured to write this note for the purpose of inquiring whether, in view of the unexpected and extraordinary omission of the Legislature, and the disastrous consequences which it would produce, your bank will not advance the amount required for this object, and thus save the State from the disgrace of having its obligations dishonored. ...

I possess no authority as a public office to borrow the money, or bind the State to repay it; nor can I tender any other security than the expression of the entire confidence in the integrity of the people. ...

C. O. Halsted, President of the Manhattan Company, to S. E. Church, Comptroller of the State of New York, Albany, June 2, 1859:

Yours of the 30th ult. received, and its contents noted. It is deeply to be regretted that provisions should not have been made for the payment of the interest on the new canal debt of $12,000,000. That the credit of the State should be protected is a matter of vital importance. ...

The high credit which this State so deservedly enjoys, both in this country and in Europe, and which has always been regarded with just pride by its citizens, must be preserved untarnished and its obligations must not be dishonored. If you as the Comptroller possess no authority to make a loan for the payment of the interest, and no other means can be made available, relying upon the ability, the honor and the faith of the State to repay the money, this institution will advance the necessary amount.

Very respectfully,

Your obedient servant [that was a stock sign off back then, btw]

According to MeasuringWorth.com, $385,000 in 1859 is the equivalent of about $1.4 billion in 2012 so this was no small favor but rather the actions of a public spirited institution also interested in protecting the value of the state bonds it held on its balance sheet at secondary reserves. Hint, hint holders of Treasuries.